Morgan Stanley Fined £5.41 Million by Ofgem for Breach of Energy Trading Communication Rules

Britain's energy regulator, Ofgem, has announced that it is imposing a fine of £5.41 million ($6.88 million) on Morgan Stanley & Co. International plc (MSIP) for failure to record and retain electronic communications related to trading wholesale energy products. The penalty comes as a result of breaches that occurred between January 2018 and March 2020, Ofgem stated.

This fine, a significant enforcement action by Ofgem, is notable as it marks the first instance of such a penalty in Great Britain concerning the legal obligation to record and retain electronic communications tied to trading wholesale energy products. These communications occurred among wholesale energy traders using private phones via the messaging application WhatsApp, discussing various energy market transactions.

The regulatory framework under which these rules fall is the REMIT Enforcement Regulations. These regulations are designed to safeguard consumers, ensure market transparency, and uphold market integrity by empowering Ofgem with the authority to investigate and take action against insider trading and market manipulation.

The breach came to light after Ofgem exercised its information collection powers under the REMIT Enforcement Regulations, requesting information from MSIP. While MSIP had policies in place prohibiting the use of WhatsApp for trading communications, Ofgem's investigation revealed that the company had not taken sufficient reasonable measures to ensure compliance with both its internal policies and regulatory requirements.

Morgan Stanley & Co. International plc admitted to these breaches covering the period from January 2018 to March 2020. The company has already undertaken measures to prevent such breaches from recurring, including enhanced staff training and strengthening internal systems and controls.

In response to the investigation and the findings, MSIP cooperated fully with Ofgem and agreed to settle the case. The imposed fine incorporates a 30% penalty discount for resolving the matter through settlement.

Cathryn Scott, Regulatory Director of Enforcement and Emerging Issues at Ofgem, emphasized the significance of the penalty as a clear signal to market participants that adherence to all REMIT rules is non-negotiable. Scott highlighted the potential risk posed by the inability to record or retain electronic communications, stressing the importance of maintaining the integrity and transparency of wholesale energy markets.

The enforcement action serves as a reminder to all market participants of the regulatory obligations in the energy sector and underscores the commitment of regulatory authorities to ensuring market fairness, integrity, and adherence to the stipulated rules.